Bank of Japan stuns markets with only tiny change to policy

After all the hype and expectation around the potential use of
so-called helicopter money, the Bank of Japan has delivered just
a slight tweak to Japanese monetary policy by voting to increase
the amount of exchange-traded funds it buys to an annual pace of
6 trillion yen from the previous level of 3.3 trillion yen.

It has left the amount of Japanese government bonds static at an
annual rate of 80 trillion yen and left rates unchanged at -0.1%.

The BOJ said in its statement accompanying the
decision that given the Brexit, the slowdown in emerging
economies, and uncertainties around offshore growth, the
increased measures — which it characterised as an "enhancement of
monetary easing" — were necessary to "prevent these uncertainties
from leading to a deterioration in business confidence and
consumer sentiment as well as ensure smooth funding in foreign
currencies by Japanese firms and financial institutions."

Aside from the ETF buying the bank said it would also "increase
the size of its lending program to support growth in US dollars
to 24 billion USD" (about 2.5 trillion yen; double the previous
size of 12 billion USD).

These measures provide funds to Japanese firms' overseas
activities.

Rather than conduct outright helicopter money, the bank said it
would support the government's stimulus initiatives by keeping
monetary policy accommodative:

"The Government is undertaking fiscal and structural policy
initiatives, including a large scale 'stimulus package,' which
is currently being compiled. The bank will pursue 'Quantitative
and Qualitative monetary Easing (QQE) with a negative Interest
Rate' including measures decided today to provide highly
accommodative financial conditions."

The bank said the inflation outlook was roughly unchanged for the
year ahead and also for 2018, while it expects the Japanese
economy to expand moderately from its initial estimates.

This is a disappointment to the market and
the yen is surging again with USD-JPY down about 200 points
from the days open at 103.36. On stocks the Nikkei has traded a
wide range after the announcement and is now down 0.82%.